Prohibited Transactions in IRA Real Estate Investments

Prohibited Transactions in IRA Real Estate Investments

In everything we do, there are certain limitations that we must be aware of. Otherwise, we would suffer the consequences of meeting penalties or even imprisonment. These punishments depend on the rules that were established by the government for both small establishments and large entities. Rules and regulations are organized to avoid misuse of benefits that are offered. This is also true in retirement plans. One of the retirement plans that are widely considered is Individual Retirement Account or IRA. Real estate investments, bonds, stocks, mutual funds and more are being accepted in this type of plan. Many people take part in IRA since investment options are readily offered not like any other retirement plans.

In IRA, real estate investments may offer astonishing benefits yet it could be confusing and complicated when it comes to rules and regulations. In general, early withdrawals (accepting distribution before 59 ½ years) are subjected to a 10% tax penalty in IRA as well as other retirement plans. These penalties are not only applied to your IRA account, but also to other parties who are involved. The penalty for other parties reaches about 15% of the amount involved and could go as high as 115% if not corrected. These are prohibited transactions that are commonly misunderstood by investors. To avoid any of these restricted transactions, let us further discuss them.

The Internal Revenue Service (IRS) mandates that your IRA for real estate investment should not have anything to do with any disqualified parties to

minimize or avoid conflicts of interest. These disqualified persons include you, your spouse, your lineal descendants (and their spouses) and your lineal ascendants. Any of the mentioned parties should not take part in managing your IRA for real estate investment. Additionally, your IRA or any administrators of such are also deemed disqualified entities. Other business entities like corporation, trusts or partnerships who own 50% of the property are also considered disqualified entities.

collectibles and life insurances. Both of these types of investments do not provide income and they are generally non-negotiable financial instruments. Furthermore, granting loans are not accepted in IRA. Real estate investments may at times encounter downfalls. Though borrowing is not allowed, you may use your IRA as leverage. Instead of taking out loans, you may consider taking up a real estate IRA. Rollover this type of IRA to any other IRAs. This must be done within 60 days otherwise the 10% tax penalty would be applied to the account.

Knowing what transactions are accepted would definitely guide you in your IRA for real estate investment. When starting your IRA, real estate investments or other investment types may be chosen. You must keep in mind that having basic information is not enough no matter what investment you take. You must learn more things about this so you would have an idea if any of your decisions are

restricted or not. The best tip for you is to avoid any of the disqualified parties and focus on independence. A wide variety of investment opportunities are offered but be very careful in every transaction you make.